R Street Institute policy paper: A carbon tax, but at what price?

WASHINGTON (Dec. 12) – A carbon tax has rightly been called a “textbook” response to climate change, and economists from across the political spectrum have endorsed it as the most efficient way to reduce greenhouse gas emissions. But acceptance of the case for a carbon price leaves one key question unanswered: What should that price be?

In a new policy paper, R Street Director of Energy Policy Josiah Neeley provides a brief overview and evaluation of some common criticisms of using the Social Cost of Carbon (a metric that describes the overall costs and benefits caused by the emission of one ton of carbon dioxide) as a mechanism for setting a price on carbon.

The paper highlights work that has been devoted to precisely quantifying the damage from greenhouse gas emissions. While there are many uncertainties, it is clear that greenhouse gas emissions are harmful, and a carbon tax is an appropriate mechanism for addressing this harm. The exact price at which a carbon tax should be set is a political judgment that has to account for all sorts of factors in addition to the damage climate change has already caused.

The author adds, “while there can be legitimate disagreements over what an appropriate carbon price should be, this is not an argument against having a carbon tax in the first place. If we are not sure, for example, whether the ‘best’ carbon price is $20 a ton or $50 a ton, the answer is not to set the price at $0 instead.”